Sterling Infrastructure Inc (STRL) 2010 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Sterling Construction Company first-quarter 2010 conference call. I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I will now turn the conference over to Mr. Jim Allen, CFO. Please go ahead, sir.

Thank you, Carrie. Good morning, ladies and gentlemen. This is Jim Allen. I am Sterling's Chief Financial Officer, and I would like to welcome you to this Sterling Construction Company conference call to discuss the results for the first quarter ended March 31, 2010, which we released this morning.

I am joined today by Patrick T. Manning, our Chairman and Chief Executive Officer, and Joseph P. Harper Sr., our President and Chief Operating Officer.

First, I must remind you that this call may include certain statements that fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risk and uncertainties, including overall economic and market conditions; competitors', customers' and suppliers' actions; weather conditions; and other risks identified in our filings with the Securities and Exchange Commission, which could cause actual results to differ materially from those anticipated.

Accordingly, any such statements should be considered in the light of these risks. Predictions that we make at any time may not continue to reflect management's beliefs, and we do not undertake to publicly update them.

Turning to the financial results for the first quarter of 2010, revenues were down 9.2% or $8.6 million to $86.2 million for the 2010 first quarter from that of the 2009 first quarter. As was the case through much of 2009 and thus far this year, the bidding climate and competition in our markets remain challenging and we have worked off backlog without fully replacing it.

The decrease in revenues reflects the weakness in our Texas and Nevada markets, partially offset by the inclusion of revenues from our Utah operations, which we acquired in December 2009. The lower revenues in Texas and Nevada in the first quarter of 2010 were due to our reduction of approximately 25% in our workforce since early fall 2009 as a result of a decrease in backlogs and the wetter weather than in the first quarter of 2009.

The decline in our gross profit in the first quarter of 2010 to $8.2 million or 30.2% from the first quarter of 2009 and the decline in our gross margin from 12.5% in 2009 to 9.6% in the first quarter of 2010 were due to less productivity on contracts and progress as a result of the reduction in the number of work crews we just discussed and, again, wetter weather.

Differences in the mix in the state of completion and profitability of contracts during this period and approximately $1 million in unabsorbed equipment overhead also contributed to that decline.

Partially offsetting the decline was a gross profit in margin earned by our Utah operations acquired in December 2009.

The decrease of 69% in our operating income from $8.7 million in the first three months of 2009 to $2.8 million in the 2010 first quarter and a 71% decline in our net income attributable to Sterling common stockholders from $5.6 million in the first three months of 2009 to $1.6 million in the (technical difficulty) quarter were greater than the gross margin decrease of 30.2%, primarily because of higher general administrative expenses, which increased $2.3 million in the first quarter 2010 and were 6.3% of revenues in the that quarter versus 3.4% of revenues in the first quarter of 2009 for the reasons we will discuss shortly, and because G&A expenses as a percent of revenues do not decrease when revenues decreased. In other words, G&A does not vary directly with the volume of work performed on contracts.

The increase in G&A expense was due first to the inclusion of G&A of our newly-acquired Utah operations, which was 1.7% of first-quarter 2010 consolidated revenues. We have started to review the Company's and our Utah operations G&A to achieve efficiencies and reduce duplicate costs. But it is too soon after the acquisition to realize substantial savings from our review.

Second, as previously noted, revenues declined in the first quarter and G&A expenses, unlike cost of revenues, do not decrease because of declining revenues.

Third, the rest of the increase was primarily due to the increase in compensation expense in the first quarter of 2010 due to the hiring of talented project managers who became available because of market conditions and are necessary to assure our future growth.

Net income per weighted diluted share attributable to Sterling common stockholders was $0.09 in the first quarter of 2010 versus $0.41 in the first quarter of 2009, and decreased for the reasons we have just discussed and a higher proportion of our net income being derived from earnings of subsidiaries attributable to noncontrolling interest than in the prior year, partially offset by the tax benefit of those earnings being taxed to the non-controlling interest and a higher number of weighted average diluted shares outstanding attributable to the sale of 2.76 million shares in December 2009.

I will now turn the discussion of results over to Joe Harper, our COO.

Thanks, Jim, and good morning, everyone. The poor weather conditions in Texas continued through the months of January and February, with return to more normal patterns since then. The impact this has on pipe and paving operations is difficult to quantify, but when it is too wet to access our dumpsites or receive dry materials for paving base or pipe bedding, most of our productive construction work either shuts down or continues at less than optimal production rates.

In addition, with backlog in Texas for both municipal and highway contracts continuing to decline, we have reduced overtime on all projects where we will not incur liquidated damages or fail to achieve incentive awards. The decline you see in revenues is the direct result.

As we discussed more than once last year, we have reduced our workforce in Texas to match current backlog with labor requirements. With backlog and the number of active jobs reducing, we are well aware of the potential negative impact on productivity as job security becomes a concern for the workforce. We believe our project managers and superintendents are doing a great job of managing through this issue.

At current workload levels, it appears that we are in pretty good shape, assuming we continue to pick up new work at rates similar to the last few weeks.

As most of you are aware, work on the I-15 core project has begun with utility relocations and some bridge structural work. All members of the joint venture are gearing up for major efforts this summer.

Operations in our Western divisions are all going well, including Hawaii. We expect to see an increased revenue stream as production rates on several projects which were impacted by the weather in higher elevations this past winter take advantage of the spring and summer weather.

On the M&A front, we expect to see some interesting opportunities later this year, with many good companies struggling to maintain adequate funding. However, to get our attention, it will take an exceptional deal. We've looked at a couple of target companies so far this year, but intend to be very selective.

Lack of visibility to the timing of a return to normal markets can be unsettling. These are frustrating times for our managers, our analysts and our long-term investors. I can assure you that our management team is dedicated to working our way through this downmarket with cash flow remaining positive, the balance sheet continuing to improve and our field organization intact.

We will continue to hold capital expenditures to a minimum, do everything we can to retain superintendents and foremen who have proven they are superior performers, and continue to maintain tight fists on costs and administrative expenses. However, you may see some expansion of general and admin expenses as we look to add experienced estimators and project managers with design/build experience. Pat?

Thanks, Joe, and good morning, everyone. With all the wet weather, with an organized slowdown caused both by our reduction in number of crews working, as well as reduced overtime, we earned revenues of $86.2 million in the first quarter and a 9.6% gross margin. While being in one of the toughest markets that Joe or I have ever seen, we still managed to pick up $56 million worth of profitable work and closed the quarter with $618 million in backlog.

We have already this second quarter of 2010 picked up a large-diameter water main project for the City of Houston. We continue to bid work in all our markets and some new ones, and were second on a $70 million project in Las Vegas just last Thursday.

We are hopeful that with the extension of the SAFETEA-LU funding to December 31, 2010 there will be more visibility to future spending flow, and that this will add to some normalcy to the marketplace. In addition, the federal government added $19 billion to the fund, reversing the rescission of 2009 and adding some additional funds. How and when this will be spent, we haven't as yet seen. Hopefully, it will add more work in the near future.

And when we are able to pick up backlog and move into seasons which are more conducive to productivity, we believe that revenues will increase as well as the net profits. We are working diligently at Fort Bliss in El Paso and exploring other US Corps of Engineers work. We plan to expand this part of our business. We feel comfortable [and thus] broadening our range.

We are finally seeing the early signs of cracks in some of our municipal competitors. On the smaller projects, we are seeing fewer bidders. On an airport job that we bid last month, we were second, and there were only three bidders. Our bid was $53 million and had an acceptable margin, but this is certainly not the norm for a larger project.

The state highway letting schedule for the next four months, the remainder of the fiscal year 2010, is pegged at $1.55 billion. We went through this type of market in the mid-80s' real estate financial crisis and came out stronger than ever. This is no different. The market will return.

As a final note I would like to welcome Rich Schaum to our Board, a seasoned automotive executive, as well as Robert Eckels, former Harris County Judge and currently a practicing attorney. We also want to welcome Avi Fisher with BMO Capital Markets as our newest analyst.

Now if there are any questions, we would be happy to answer them.

(Operator Instructions) Kathryn Thomson, Thompson Research Group.

First, how should we think about modeling SG&A going forward, given that this is a bit higher this quarter than our expectations?

Well, Kathryn, I guess I would say, one, you've got to look at the revenues. And as they vary, G&A percentage will vary as well. But it is not a direct -- absolute G&A is not a direct variance with revenues.

We will -- until we achieve some efficiencies between ourselves and the legacy Sterling and RLW, we will continue to have a higher G&A rate. But overall, I think you can sort of look at the first quarter and say that is probably the max, unless we are able to attract -- add some additional estimating and project managers that we really want, who have talent and who can help our business going forward.

At the very least, fiscal 2010 SG&A will obviously be higher than 2009.

Presumably.

And also, what percentage of your overall margin pressure was due to wet weather?

There is no way of telling. We can look at the weather and say that it was a very -- the first two months were fairly wet, and certainly wetter than the last year. But a little rain often is worse than a lot of rain. You have to do the same thing over and over, where with a lot of rain in one period of time, you have to do it once. You've got to pump out, you've got to just do a lot of things.

So it is very difficult to quantify the effect of weather, other than for you to say -- look at the weather pattern and say, well, it appears there is X days versus X days. But even then, it won't translate into a direct correlation.

The impact comes from several places, because we do have some negative impact as a result of labor inefficiencies. But with revenue not getting produced in the quarter, we also have an impact with unabsorbed fixed costs coming from our fleet ownership. So it gets pretty complicated to try and quantify it.

Sure, sure. You had a nice brief update on the bidding environment in the current market and starting to see some ease. Could you talk about the composition of projects you are seeing, and also the progression of lettings as you really moved from your February and March -- April -- to April.

I think the progression in the lettings looks to be stronger for the remainder of fiscal 2010, which I mentioned is $1.55 billion. So that looks pretty good to us.

As far as the composition in the marketplace, I mean, it remains generally the same. They are bidding some smaller projects; then some larger municipals a little slower than normal, although we did pick up that large-diameter water main with the City of Houston last week.

Yes, the five months remaining in the Texas fiscal year all look pretty strong, Kathryn. There is one month that's slightly below $200 million. The other months are like in the mid-2's, and then August is over $900 million slated to bid.

So it is similar to the rates that we have seen earlier this year, earlier in that fiscal year, except for August, where it looks like the largest letting we will have ever participated in.

And do you know what is driving that?

I think there was concern -- I know there was concern with us, and I believe it was industrywide, that with the lack of clarity and the SAFETEA-LU funding all messed up, that this would not come to fruition. But they have reaffirmed that this letting schedule will hold up, now that SAFETEA-LU has been extended and the rescission has been fixed.

Okay, great. Two final questions on the bonding company, something we've been watching closely. When did you start seeing some players weaken more significantly? For instance, was it in the April timeframe, when their annual numbers are viewed by bonding companies?

And then my final question is could you give an update on aggregate and cement pricing in the quarter?

As far as the smaller competitors that we see having some issues, it is almost by word of mouth now and not by any of the bonding companies stopping them from working yet. But we are seeing the number of bidders on the municipal side decrease some. And I think the financial statements they put out, while it may not cause them to go out of business, causes their ability to bond to be reduced.

Yes, I don't think we've see that impact yet, Kathryn.

It's probably pretty early.

Yes, I think the bonding company this month will be getting the last batch of smaller competitors' statements in. And it is sort of unclear how fast they are going to react.

I know that our bonding company's expectations, as well as one other's, was that it was not going to be pretty and that some of our -- some competitors on a broad basis were going to be not there. We heard a quote from one of the top four or five bonding companies that they may be looking at as many as 20% to 25% reduction in clients.

Okay. That's very helpful. And then also, finally, update on the cement and aggregate pricing trends.

Cement seems to be holding fairly steady, as do aggregates. And aggregates for us are a little difficult to track because it depends on how far they are from the source and where they are shipping, because the transportation cost is so heavy. But my feeling is they are staying pretty steady.

Great. Thank you so much for answering my questions.

Rich Wesolowski, Sidoti & Company.

I'm confused by some of your prepared commentary on the LDs and the incentives. Were there any material contract write-downs during the quarter?

No material write-downs during the quarter.

Okay, good. If I assume that the gross margin for your legacy operations, your non-Utah operations, was in the high-single-digit range or a little below what we are used to seeing, it implies low to mid teens for Wadsworth. Is that accurate, and is that a best guess of what you will be in coming quarters?

Rich, as you know, we don't comment on the gross profit percentages, or the absolute amount of gross profit for our individual operations. So I think you would have to just go by the overall consolidated gross profit percentages.

Okay. How about this way -- a little more qualitatively? Were the Utah operations about as profitable as what you would've expected when you bought them?

Yes, I would say they are a little stronger than my expectation when we acquired them, Rich.

Okay, good. And then lastly, I was surprised and encouraged to see you hired some project managers during the quarter. Does this suggest any change in the outlook for later in 2010 and into 2011, or even a recognition that the bidding is not going to get any worse from here?

You know, the crystal ball is still looking pretty foggy. But with the state sort of affirming that their original issued budget is going to hold up and giving us the clarity for these last five months, we've got plenty of work to bid on.

I don't know that we will see competition change dramatically, but we are sort of hopeful that will happen, especially on the municipal side, Rich.

I think, project managers, we have been working diligently, very hard, on trying to penetrate opportunities in the design/build arena. And frankly, our bench, because we've not done but one small job and in design/build, our bench doesn't have the resumes that we need to have to participate well in that marketplace. So we are continuing to look for a couple of strong project managers who have had that experience.

So this is more of a --

Rich, Joe is obviously referring to one small design/build in Texas. Obviously, RLW has had many design/build jobs.

Right. So this is more an effort to expand the services in Texas, as we've been talking about, rather than increasing what you already have there?

That's correct.

Yes, that's right.

Okay. I assume if they are not assigned to work then their wages are included in SG&A?

Yes.

Okay. And lastly, how is the Hawaii project going along?

I don't like to talk about job-specific, and it's early enough in the job -- but we are very pleased with it so far, Rich.

Pleased enough that you would certainly bid for any other extensions of that, if they were available?

We expect one to be coming out here before the year is out, and yes, we will be participating.

Great. Thanks.

Avram Fisher, BMO Capital Markets.

Good morning. Thanks taking my questions.

Welcome -- by the way, welcome, Avi.

Thank you very much. It's good to be here. And I'm going to ask a question -- because this is my first one, I can plead ignorance if you don't answer it. But will you disclose the RLW contribution in the quarter, revenues, backlog, bookings, at all?

No, we will not.

Okay. And I shouldn't ask that going forward, I take it?

You won't get any answers. You can ask it.

All right. In the M&A side, are you looking to add -- I'm trying to understand what you are looking for when you think about an M&A. Is it new end markets and geographies, or bolstering what you have now or a little bit of both?

New geographies, as well as there may be the possibility of synergies going either direction. But it's pretty much our strategy that we've had for the last four or five years, and you've seen the type of companies that we've added. We continue to look and hopefully we will grow our enterprise in that fashion.

Does that include trying to pick up some assets or aggregate facilities or anything of that like?

I doubt that we would do that. We have no particular aggregate operations, except a small one in Nevada.

Okay, and in terms of the bidding environment, we are seeing some rebound in private construction, even as public construction nationally declines. Are you seeing fewer bidders on projects? Are you seeing the same number of bidders? Is the number of competition and pricing getting a little bit back to the realm of normal?

It's probably a little too early to say. I think we are seeing slightly fewer bidders on the municipal side, which is affected by the private market. The major state highway work, the housing or the private market has no effect.

Okay. And finally, just a quick question for the Q. This might be a little bit granular. But your equity in the net assets of JVs is well above sort of your share of JV revenues and net income. And I was wondering why that was. And if you want me to follow up with you off-line, that's fine.

Well, we have some JVs that are in the wrapup stage that still have some retainage and still have some cash that haven't been distributed out to the joint venture parties. So that makes the equity in it seem high in relation to the revenues.

Okay. Does that come back down to normal next quarter, or back to the 12.5% range skewed by Utah?

Now, you've gone from assets to gross profit.

I see what you're saying. Okay.

Okay? But some of them -- there were some joint ventures in progress when we acquired RLW, and then the closeout phase. And the comparison of revenues to the investment is out of proportion now due to that closeout phase. But as the summer comes on and we start to participate more in the I-15 core, you will see the revenue shares grow as -- in relation, probably, to the net investment.

All right. Thanks very much.

Tahira Afzal, KeyBanc.

The first question is to do with your free cash flow. Going through your 10-Q, obviously, exceptionally strong, close to $0.80 per share. How should we be looking at free cash flow progressively through the year, assuming your work sort of starts to stabilize or slightly ramps up as we go past the first quarter?

Generally speaking, you are adding back the G&A -- I mean adding back the depreciation and a few other non-cash things. Then you are looking at the cash flow obviously coming from net income, and plus the adjustments that you might have from the other working capital items.

And the working capital items can fluctuate from quarter to quarter quite easily. But still, making money, adding depreciation back, a few -- deferred taxes back, a few things like that, should generally give you a pretty good feel for the cash flow from operations.

And then we are keeping our CapEx to a minimum. And I think we've said someplace we expect it to be somewhere around no greater than last year or not much greater than last year. So using those variables, you should be able to project cash flow within a reasonable amount.

Got it. Okay, thank you. And then if I look at what you might define minimal CapEx, what are you curtailing in terms of CapEx that you would like to ramp up on if the visibility improved?

Well, a fair amount of our equipment fleet is not incurring a lot of hours right now, so it is not wearing out at the kind of rate that it would in a normal -- a more normal revenue stream. So the need to replace is a lot less during most of last year and certainly so far this year. So it is mostly the replacement CapEx.

There is also no need to be adding plants or other large items; again, we are keeping those pretty busy right now, but we don't need to be adding capacity. The only exception to that is some capital expenditures that are necessary to participate in that I-15 core job.

Got it. Okay. And I know you don't want to break down the RLW contribution, but would it be possible just to at least know whether there was any backlog related amortization that's flowing through right now?

No, there was none in the transaction.

Okay, and the last question for me and then I'll hop back into the queue, when you are looking at your backlog coming down right now versus the weather hopefully normalizing, and you talked about March being better, should we be seeing the revenues sort of progressively improve into the second quarter, based on what you know right now?

Yes.

Thank you.

That would be a fair assumption.

Okay. Thank you very much.

Todd Vensil, Davenport & Company.

More sort of color seeking, I guess, on the competitive environment. You guys have said that you were sort of relieved or gained some confidence by the fact that the state has come out and confirmed the big calendar, and that sort of flows, I guess, directly from the extension of the highway program to the end of this year, at least in part.

Do you get the feeling that the competition, at least in terms of the irrational bidding, may have eased up as your competitors are also sort of increasingly confident that there is going to be additional work out there to bid?

That's kind of, like you say, a color issue and a feeling issue. And it's difficult to determine, because it changes from -- or it potentially changes from month to month. So while we saw what I consider some break over the last month or so, in the next few months, we will be able to tell better if that is truly what is happening.

That doesn't give you much help, I know, but it is difficult for us, even viewing the market on a day-to-day and a week-to-week basis, until we get a consistent picture of that fewer and less competition and the potential for better margins.

I would say that job sizes north of $20 million continued to have very poor margin opportunity on the last highway letting.

John Rogers, D.A. Davidson.

A couple of things. First of all, the gain on securities sales in the quarter, what were those and is there more left?

The bulk of it was from the sale of those -- some ETFs, which represents a commodity pool related to oil, which we've used and we also explained in our Q and the K -- which we tried to use to offset the increase and decrease in crude oil or diesel prices, ultimately.

And so we on the available-for-sale method and it stays in other comprehensive -- accumulated other comprehensive income until we sell, which we did sell at the end of March, and that produced a gain.

Now what you don't see is that up in cost to sell, there would be some higher fuel prices. And this tends to offset that. The SEC and the FASB will not allow us to classify this as a reduction of cost of revenue, which -- but that is the reason we had it, is to offset the oil.

So I don't really view it as a nonoperating item, but I would view it as trying to manage our fuel costs.

Okay.

But now, we will continue to look at that and buy where we feel it is appropriate and sell where we feel it is appropriate. We are managing it ourselves as opposed to just putting it in trading securities, which we could do, where it would automatically be P&L or not.

I guess I would say if there is not a lot of volatility, we will probably hold. When there is more volatility, we may sell and buy.

So Jim, having said that -- I guess up until the last day or two -- but the run-up in oil prices that we've started to see this spring, are you hedged against that?

Well, that is what this was for. But if we knew what the oil price was going to do, it sure would have helped. I noted this morning they were up $1.80 or something like that. But they were down, since the middle of last week, almost $8.00 or $9.00. So it's really --.

You're talking about crude.

Crude, yes. And diesel, the diesel parallels -- in this particular ETF -- parallels that, but with a pretty good correlation versus something that would track heating oil, which would be the less correlation.

Okay, and roughly what percentage of your needs are hedged? Do you know, from --?

It's not a great percentage. We have a partial -- we are not rushing into this because we are not professionals at it. But it is only a part of our needs.

This is Joe. We are trying to stay around 50% to 60%.

Okay. Well, you've done well so far.

Secondly, the minority interest in the quarter, was that all [RNW] in Wadsworth?

Again, we don't get into the individual operations of our different offices. About all I can tell you.

Well, we don't have any minority interests anywhere else.

You got it at [RHF]. I'm sorry -- I thought he said RLW.

He said both.

Yes, both --

Oh, both? Yes, that's certainly for both of them. The net is for both of them.

Okay. Well, then would it be fair to say that the Texas operations, I mean if you just -- because you have 20% that is not owned in both or you own 80% of it -- then did the Texas business lose money in the quarter?

No, we remained profitable.

And then lastly, just in terms of the pickup that you noted in the big water project in Houston and some other things that you're seeing now, one, do you have a number for how much work maybe you've been awarded but hasn't yet been booked into backlog? You've given that to us in past quarters. And then to follow on that, is the pricing getting better or just holding its own at this point?

The number we haven't booked in the backlog is really just a financial accounting method of saying we haven't been awarded yet or (technical difficulty) to refer to whether we've signed contracts or not, but we never lose any of those jobs. We have picked up one or two projects already this quarter.

Those are in backlog, but I don't have the number on the tip of my lip right now. I think it's somewhere around $64 million of our total $618 million of backlog, where either, one, the contract had not been officially signed, or two, the contract price -- while there's already a contract, the contract price has not been finally determined.

Okay. And then just in terms of pricing, what you are seeing now.

We are still bidding work at a profit. And again, we've picked up a couple jobs or -- I forget -- one or two this quarter already. And again, it is hard to tell whether -- what point we are in the market changing.

Okay, but it sounds, Pat, like it might be better than it was.

Absolutely, if you pick up the water main job.

I think on the municipal side, that's a fair statement, JR. Our hit rate in 2010 is somewhere just barely above 5% of the contracts we bid. That is not by dollars; that's by number of proposals, which is absurdly low on the one hand. On the other hand, we are seeing signs amongst our competitors, number of bidders, I think some pricing that are moving in the right direction anyway.

Thank you very much.

(Operator Instructions) Jack Kasprzak, BB&T Capital Markets.

I just want to verify a number. You said you've picked up $56 million of work in the first quarter. Was that the number?

That's correct.

And the project in Q2 in Houston, I guess that is the water main project. Did you say how much that was?

No, but it's under $20 million; otherwise you would have seen a press release on it.

Right. Okay.

It was announced publicly. It was $11.3 million.

And I realize you guys aren't directly involved, but what are you seeing in private construction in your markets? Presumably you might hear other contractors talk about the environment, which has been so bad to this point. Do you have any color in your markets about the private sector of construction, which if that picked up, could help, obviously soak up some competition?

Jack, the last thing I saw in Houston, in particular, was they expect to build a little north of 20,000 homes this year. The activity we've seen for projects dating from developers has been extremely low. So we are -- what's happening at least so far is we are seeing a pretty serious absorption of lot inventories.

So again, it is a move in the correct direction, and I think they will be adding -- the developers will be likely adding lots later this year for the first time in maybe 12 or 18 months. So that is a positive sign. I am not as familiar with Dallas or San Antonio.

Okay. That's very helpful. That's it for me. Thanks very much.

I don't there are going to be too many new developments this year, though, in Las Vegas.

Todd Vensil, Davenport & Company.

Just a couple more to follow up. If I think about the underutilization in the first quarter because of the weather versus what you guys have been talking about having a downward trend in your backlog -- in the margins in your backlog, was the pressure from the underutilization more in the first quarter than the pressure from lower-priced stuff rolling through your backlog is likely to be going forward?

The underabsorption is more a function of us taking some pieces of equipment and storing them, idling them. We know the equipment is good. We want to use it for the future. But we just didn't need the same level of equipment in the field as we had had.

It also is a result that we didn't take as much equipment to Hawaii as we had anticipated. We were able to rent more of it there. So you've got two results basically coming from two places.

Todd, if it helps you, we would expect throughout 2010 to have an underutilization of the fixed costs in our -- in the fixed costs coming through. So it is the first time in a while -- it's the first time in a long while it has been this significant. But it is pretty clear to us right now that will be the case. We will not absorb all of our fixed costs through 2010. And I'm talking primarily about our Texas operations.

Got it. That is really helpful. Thanks for that.

And then, Jim, on the tax rate, how do you see that playing out this year?

If I had a crystal ball to say where we are going to make our money, I would tell you that precisely. But I expect it is probably going to be lower than what we have had over the last one or two years, just as it was in this first quarter.

Okay. Fair enough. Thanks a lot.

There are no further questions. I will now turn the conference back to management.

Thank you very much. We appreciate each of you joining this call with us. And we look forward to our next report to you and hope you have a good day.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.